Law Rules

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Entries in foreclosure
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As if people facing foreclosure of the mortgages on their homes did not already have enough problems, a new wave of scam artists is targeting them. According to the FTC, so-called forensic loan auditors are offering to review mortgage loan documents to determine whether the lenders complied with state and federal mortgage lending laws. The other day, a client came to me with an ad from one such company. The “auditors” say the borrower can use an audit report to avoid foreclosure, accelerate the loan modification process, reduce loan principal, or even cancel a loan. Of course, they expect the borrower to pay large up front fees in advance. This is illegal in many states. Even if it is not illegal, it is foolish. The FTC recommends that borrowers talk directly to their lenders to negotiate a new repayment schedule.

Why would someone already deeply in debt, unable to pay their mortgage, fork over hundreds or thousands of dollars to someone to do what they could do themselves? Two reasons. First, many lenders or mortgage servicers are so swamped with delinquent mortgages that they do not have sufficient personnel to talk to every borrower who needs help. Borrowers cannot get in touch with anyone who has authority to work out a new payment plan, so they think that someone with a fancy sounding title, like forensic mortgage loan auditor, might have better luck. Second, borrowers may lack confidence in their own negotiation skills. In either case, the person to see for help is a lawyer. Most lawyers will charge less than the scam artists and will not waste time searching for unnecessary negotiating leverage. Borrowers already have all the leverage they need. Banks do not really want to own all of the homes securing their mortgage loans. If the borrower’s lawyer cannot get a response from the lender, he will certainly be able to get a response from the lender’s attorney when a foreclosure action is filed.

As they said in the movie Cool Hand Luke, “what we’ve got here is failure to communicate.” The solution to a lack of communication, or inability to communicate, is to start talking. If mediation is available or required, the borrower should definitely take advantage of it, using the mediator to help negotiate with the lender. Ignoring the problem or hoping someone will find a silver bullet to make it go away is rarely the answer. In the current economy, mortgage default and foreclosure are legal problems that no one should be embarrased to talk about.

Good PR for the Milwaukee Foreclosure Mediation Program in today’s Milwaukee Journal-Sentinel. And it looks like they need it. According to the article, 5800 foreclosure actions are pending in the City of Milwaukee, but only 326 people applied for mediation as of the end of November. Maybe the word will finally get around now.

The current recession has affected the various states in different ways, but almost all states are reeling from an increase of foreclosure lawsuits. In Florida, one of the most populous states where the real estate bubble hit spectacular highs and now is hitting incredible lows, a state Supreme Court task force has recommended that courts mandate mediation in any residential mortgage foreclosure action where the homeowner is still in the home and wants to stay there. Some counties and judicial circuits in the state are already doing just that. If the homeowner enters any kind of answer or appearance in the lawsuit, judges in those circuits are requiring mediation before scheduling a hearing in the case. Some of those circuits are requiring the mortgage lender to pay all of the mediation fees.

Meanwhile, in Wisconsin, a medium size state where the real estate bubble was never quite so large, a bill has been proposed that would require mediation in all foreclosure cases where the homeowner wants to stay in the home. In the meantime, Marquette Law School is providing free mediation services for homeowners who want to save their homes from foreclosure in Milwaukee County.

A recurring complaint by homeowners facing foreclosure is that they have tried to renegotiate their mortgage but have been unable to contact anyone to talk to at the bank. A foreclosure lawsuit is the lender’s way of getting the delinquent mortgagor’s attention, as well as the first step toward an eviction. The states and courts now seem to be giving the mortgagor the means to get the lender’s attention, and to start the ball rolling toward renegotiation of the mortgage. No matter how large the state or how severe the backlog of foreclosure cases, mediation is rapidly becoming the tool of choice for states and courts. Paying for the mediators’ time is a continuing problem, but the cost of foreclosure to homeowners, lenders and the states is undoubtedly greater than mediation fees. If homeowners can stay in their homes, they save the stigma of a foreclosure, the lender saves the expense and loss of a forced sale, the state keeps a paying property taxpayer in the home so there is less likelihood of vandalism, and the courts reduce their foreclosure case backlog. Given those benefits, coming up with the cost of mediation should not be too difficult.